Henia v Beck and the importance of contract procedures

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This case concerned an important interpretation issue about the payment provisions of the JCT Standard Building Contract without Quantities 2011 (as amended) (the Contract), and of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (the Construction Act). It also explores the operation of the liquidated damages provisions of the Contract in the context of the extension of time process.

The Court made three significant findings as follows:

A late interim application for payment made by the Contractor could not, on the particular facts, be construed as falling within the next application for payment period, ie the following month.

A Pay Less Notice could include for and allow deductions and other set-offs in respect of which the Employer was entitled to make a claim. It therefore followed, as a matter of simple contractual construction, that the Pay Less Notice in this case could properly challenge either the Contract Administrator’s certification or any Interim Payment Notice.

A failure on the part of the Contract Administrator to make a decision in respect of a contractually compliant application for extension of time would not put time “at large” and would not in itself be an “act of prevention” which caused delay.

This case is part of a long line of cases where litigation has arisen due to contractual procedures not being followed.

The judge observed that the statutory requirements under the Construction Act have led to “unnecessarily complex contractual provisions”, not least those detailing the consequences of failure to comply with timing provisions. As the judge rightly points out though, the Construction Act terms can not be excluded from the Contract.

The lesson to be learnt from this case is that while the provisions of the Construction Act remain “good law”, parties must be careful to understand the mechanisms under the contracts they enter into. Payment provisions are instrumental throughout the life of any contract and pro-active contract management is key: It is not enough to simply dust off the contract once a dispute arises. This approach could result in expensive litigation for both parties, where such disputes would have been avoidable if the contract had been observed.

If the parties are in any doubt as to how the payment mechanisms work in practice, they should work together to make them both workable and Construction Act compliant from the start.